WEBVTT - Debt Ceiling, Hollywood Strike, Fed, and Banks (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.640 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Bond the Bloomberg Markets Podcast called Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.000 you listen to podcasts, and at Bloomberg dot com slash 0:00:20.040 --> 0:00:23.599 podcast pack of West it looks like it's trading, that 0:00:23.720 --> 0:00:27.680 it stopped. Western Alliance is now trading, it's down twenty 0:00:27.720 --> 0:00:30.800 two percent. We want to bring in another smart voice here, 0:00:30.920 --> 0:00:34.720 Jay Hatfield, CEO of Infrastructure Capital Management, and Jay, your 0:00:34.840 --> 0:00:36.760 veteranan of these markets. What do what do you make 0:00:36.760 --> 0:00:39.479 of this regional bank business these days? How these structure trading? 0:00:39.760 --> 0:00:43.200 Well, you know, I was around during the financial crisis 0:00:43.640 --> 0:00:48.680 and this is sort of the normal, the normal dynamic 0:00:48.720 --> 0:00:51.280 that you run into. Whereas if you have problem with 0:00:51.320 --> 0:00:55.320 one bank, then short sellers will naturally talk to the 0:00:55.360 --> 0:00:58.480 other banks. And one thing that's important to remember is 0:00:58.520 --> 0:01:02.040 that the bondholders get white out as well, and it's 0:01:02.080 --> 0:01:06.640 easy to manipulate or quickly blow out the CBS market 0:01:07.360 --> 0:01:09.760 and so then that can be a signal to equity traders, 0:01:09.760 --> 0:01:12.720 but it's a very i liquid market, so that can 0:01:12.760 --> 0:01:15.679 then breed you know, lost in deposits, and with the 0:01:15.720 --> 0:01:19.200 Fed being so hawkish, it's horrible to his deposits as 0:01:19.200 --> 0:01:20.360 we saw from First Republic. 0:01:20.520 --> 0:01:22.920 What do you think needs to happen to put an 0:01:23.080 --> 0:01:23.480 end to this? 0:01:23.640 --> 0:01:30.040 I mean, how many people came out yesterday and said JP. 0:01:29.880 --> 0:01:31.360 Morgan, Wait, what day is today? 0:01:31.640 --> 0:01:33.839 No, how many people came out on Monday and said 0:01:34.200 --> 0:01:37.479 JP Morgan, you know, has put an end to this 0:01:37.760 --> 0:01:41.920 by buying First Republic. This seals it off. There's no 0:01:42.040 --> 0:01:45.360 more problems for regional banks. I mean, out of the 0:01:45.400 --> 0:01:49.680 Milkan conference, every single big wig was saying the banking 0:01:49.720 --> 0:01:53.760 system is sound. This was, you know, an idiosyncratic issue 0:01:53.920 --> 0:01:56.920 and just bad management at First Republic and SBB. 0:01:57.000 --> 0:01:58.880 But it's not going to be a problem that spreads. 0:01:58.880 --> 0:01:59.720 There's no contagion. 0:02:00.800 --> 0:02:02.800 Well, I think that they're just trying to generate some 0:02:03.720 --> 0:02:08.120 stability in the market and really just trying to stick 0:02:08.160 --> 0:02:10.200 to the party line, which the government wants them to. 0:02:10.280 --> 0:02:13.160 But until you really fix the posit insurance and or 0:02:13.240 --> 0:02:15.919 the FED cuts rates, which is extremely unlikely they should 0:02:15.919 --> 0:02:17.640 have done it last meeting, then. 0:02:17.600 --> 0:02:19.720 You're gonna but they're not gonna do it at this meeting. 0:02:19.760 --> 0:02:22.799 Or definitely meeting now they might raise again. The best 0:02:22.800 --> 0:02:24.480 way to predict what the Fed is gonna do is 0:02:24.520 --> 0:02:26.160 think about what they should have done a year ago. 0:02:26.800 --> 0:02:29.680 So if it's June of twenty two, then inflation ad 0:02:29.680 --> 0:02:32.400 and peaked, and they probably We're more bullish about the 0:02:32.400 --> 0:02:35.160 second half of the year because then it'll be obvious 0:02:35.240 --> 0:02:37.720 inflation's peaked and then the Federal figured out, But we 0:02:37.720 --> 0:02:40.680 wouldn't expect them to cut rates because that'll take them 0:02:40.680 --> 0:02:42.880 a year to figure out that they probably should cut rates. 0:02:43.200 --> 0:02:45.880 So, but I mean, the concern here on some of 0:02:45.880 --> 0:02:49.000 these regional banks has been called out by analysts and economists. 0:02:49.000 --> 0:02:52.960 Is it really sets in motion a credit crunch or not. 0:02:53.000 --> 0:02:54.840 Maybe that's your credit crunch, but just you know, it's 0:02:54.880 --> 0:02:56.720 just tougher to get credit out there, and what credit 0:02:56.760 --> 0:02:59.960 you do get the fund business and growth is more expensive, 0:03:00.000 --> 0:03:04.440 and that in and of itself could really either trigger 0:03:04.520 --> 0:03:06.600 a recession or make it a deeper than maybe people think. 0:03:06.680 --> 0:03:08.280 Is that a material risk in your mind? 0:03:08.840 --> 0:03:11.200 It definitely is, and it's kind of surprising the Feds 0:03:11.400 --> 0:03:15.280 seems to be ignoring it. But we still are constructive 0:03:15.280 --> 0:03:19.520 about the economy, maybe not staying out of a technical recession, 0:03:19.560 --> 0:03:23.040 but not going into a deepercession. And the real dynamic 0:03:23.120 --> 0:03:25.880 there is that we have a shortage of housing and autos. 0:03:26.520 --> 0:03:29.040 So unlike the FEDS model where they assume we have 0:03:29.080 --> 0:03:32.120 to have unemployment, you don't. You just have to have 0:03:32.160 --> 0:03:36.680 a shrinking money supply dropping commodity prices that will cure inflation. 0:03:36.760 --> 0:03:39.840 That's what the history shows. There is eleven hundred and 0:03:39.920 --> 0:03:43.720 fifty percent increase in oil prices during the seventies, so 0:03:43.960 --> 0:03:47.800 all the things that Fed learned from the seventies are incorrect. 0:03:48.200 --> 0:03:51.280 Is really driven mostly by very high energy prices. 0:03:52.000 --> 0:03:54.960 So you think that simply a goods and housing shortage 0:03:55.000 --> 0:03:56.560 will be enough to keep us out of a deeper 0:03:56.640 --> 0:03:58.160 session deep one. 0:03:58.240 --> 0:04:01.320 Yes, But I wouldn't ignore the credit crunch and particularly 0:04:01.920 --> 0:04:07.000 has been you know, publicized on not so much the 0:04:07.040 --> 0:04:10.080 mortgages that affect reads because those are gigantic buildings with 0:04:10.600 --> 0:04:12.839 you know, very liquid like the building we're in right now, 0:04:12.920 --> 0:04:18.320 But these smaller real estate lending, smaller buildings throughout the 0:04:18.360 --> 0:04:20.400 country could be pressured. 0:04:20.800 --> 0:04:21.080 Yeah. 0:04:21.080 --> 0:04:25.000 Well, I mean the big question is and the you know, 0:04:25.000 --> 0:04:27.120 the biggest names in finance have been warning. I think 0:04:27.200 --> 0:04:30.400 Charlie Munger was telling this to an Australian newspaper, and 0:04:30.440 --> 0:04:36.359 then someone much younger from Apollow, Mark Rohan, was telling 0:04:36.360 --> 0:04:38.440 this is Shinali Bassic that you know the next shoot 0:04:38.440 --> 0:04:39.800 to drop is commercial real estate. 0:04:39.839 --> 0:04:40.920 We should be watching out for. 0:04:40.880 --> 0:04:44.240 That, and there's no doubt about that. It just would 0:04:44.240 --> 0:04:46.279 point out it's not as bad as the financial crisis 0:04:46.320 --> 0:04:50.000 because you do have strong recoveries, so there's less leverage, 0:04:50.440 --> 0:04:54.760 it's easy to repossess, which is not true for individual housing, 0:04:55.480 --> 0:04:57.960 and there is a deep bid at some level for 0:04:58.120 --> 0:05:00.680 most of these assets, so you really just have to 0:05:00.720 --> 0:05:03.680 analyze the portfolios. But I don't think that's going to 0:05:03.760 --> 0:05:07.760 be catastrophic, just for the reason I mentioned that the 0:05:07.920 --> 0:05:11.440 loan to values were all pretty reasonable and then so 0:05:11.520 --> 0:05:13.760 therefore the recoveries are going to be pretty substantial. 0:05:14.360 --> 0:05:16.560 Jay, I'm going at WTI crud here. It's off three 0:05:16.600 --> 0:05:19.560 point seven percent today, just under seventy three dollars a barrel, 0:05:19.560 --> 0:05:22.599 giving up more than the gains it had when the 0:05:22.640 --> 0:05:26.760 OPEC plus cut production several weeks ago. What's going on in. 0:05:26.720 --> 0:05:29.279 Even though supply is tight, right? I mean every time 0:05:29.279 --> 0:05:32.000 I see, we see stockpiles coming out. They're lower than 0:05:32.040 --> 0:05:33.240 it had been anticipated. 0:05:34.200 --> 0:05:36.320 Yeah, So one thing that keep in mind about oil 0:05:36.560 --> 0:05:40.039 is it's not just a commodity, it's also a like 0:05:40.080 --> 0:05:42.159 a stock, so it has a bit of about point 0:05:42.160 --> 0:05:46.360 eight to the market. So you know, given the fears, 0:05:46.400 --> 0:05:50.000 if there are headlines like we're seeing with the banking sector, 0:05:50.520 --> 0:05:53.680 you can almost be certain, unless Ope's acting that day, 0:05:53.720 --> 0:05:56.200 that oil be very weak. In fact, this is something 0:05:56.200 --> 0:05:59.440 that FED should not ignore. Oil prices now with this drop, 0:05:59.720 --> 0:06:02.960 are off about ten percent just since the banking crisis occurred, 0:06:03.160 --> 0:06:06.040 and that's highly deflationary because it does bleed through to core, 0:06:06.200 --> 0:06:08.279 so that'll take about a half percent out of core. 0:06:08.720 --> 0:06:11.360 But of course they don't look at these real time indicators. Again, 0:06:11.440 --> 0:06:17.200 commodity prices mightey supply and the housing market. They're focused 0:06:17.279 --> 0:06:20.919 on the lagging indicators, which is really the labor market. 0:06:21.000 --> 0:06:21.920 So let me ask you a question. 0:06:21.920 --> 0:06:23.720 Just got a minute left here, But if we have 0:06:23.800 --> 0:06:27.480 a recession that's not a horrible recession, short and shallow, 0:06:29.080 --> 0:06:32.120 what kind of recovery do we have and how do 0:06:32.160 --> 0:06:34.320 you figure in the FED? Because they don't want to 0:06:34.360 --> 0:06:36.560 cut rates and they're not going to cut rates. It 0:06:36.640 --> 0:06:40.760 seems unless inflation gets back to two, terribly unlikely or 0:06:40.800 --> 0:06:43.800 something horrible happens, which I guess you don't expect. 0:06:44.839 --> 0:06:47.039 Well, you could argue that this banking crisis is a 0:06:47.040 --> 0:06:50.680 horrible thing happening, so maybe that'll actually force them to act, 0:06:50.880 --> 0:06:53.720 because keep in mind, it's just terrible for the banking 0:06:53.720 --> 0:06:57.480 business to have inverted O curve because if you lose deposits, 0:06:57.520 --> 0:07:00.000 then you lose profitability. And there's something called roll down 0:07:00.600 --> 0:07:02.320 where when you have a three year bond, it becomes 0:07:02.320 --> 0:07:04.080 a two year bond, becomes a one year bond, and 0:07:04.120 --> 0:07:07.360 that becomes more valuable. But when you have an inverted 0:07:07.400 --> 0:07:10.080 yield curve, that doesn't occur. So it's really terrible for 0:07:10.120 --> 0:07:12.680 the financial system. So I guess that's the upside. The 0:07:12.720 --> 0:07:15.800 worst it gets, maybe the federal at least stop raising 0:07:15.840 --> 0:07:18.160 rates and maybe even cut them later this year. 0:07:18.560 --> 0:07:20.960 All right, Jay, I always appreciate getting some of your time, 0:07:21.200 --> 0:07:23.840 very learned approach to this, and we appreciate getting some 0:07:23.880 --> 0:07:26.560 of your comments. Ja Haffield he's the CEO, founder and 0:07:26.600 --> 0:07:29.080 portfolio manager of Infrastructure Capital Management. 0:07:30.200 --> 0:07:32.400 What's the website, by the way, with your inflation tracker? 0:07:34.440 --> 0:07:36.400 Infracap funds dot Com. 0:07:36.120 --> 0:07:40.560 Ww FRA CAT infrastructure infracap funds dot Com. 0:07:40.640 --> 0:07:41.200 Yeah, got it. 0:07:41.240 --> 0:07:43.160 So that's an inflation tracker you like, right, Mat. 0:07:43.120 --> 0:07:45.960 Yeah, I mean we've talked about this with JB four 0:07:46.400 --> 0:07:48.920 any Essentially what you pull out the rent component? 0:07:49.560 --> 0:07:52.200 Yes, we just put in case shell air. It's very simple. 0:07:52.240 --> 0:07:54.640 You could do it yourself. We put in case shell 0:07:54.680 --> 0:07:59.400 air instead of the BLS's arcane estimate of rents. 0:07:59.760 --> 0:08:01.960 Right, Jay, thanks so much for joining us. We really 0:08:02.000 --> 0:08:02.600 appreciate it. 0:08:03.800 --> 0:08:05.000 You're listening to the team. 0:08:05.320 --> 0:08:08.720 Ken's our live program, Bloomberg Markets weekdays at ten am 0:08:08.760 --> 0:08:12.160 Eastern on Bloomberg dot com, the iHeartRadio app and the 0:08:12.160 --> 0:08:15.200 Bloomberg Business app, or listen on demand wherever you get 0:08:15.240 --> 0:08:17.960 your podcasts. 0:08:18.000 --> 0:08:20.800 Well, a busy week just got even busier. Of course, 0:08:20.840 --> 0:08:24.120 we have earnings coming out in mass this week, We've 0:08:24.160 --> 0:08:26.320 got lots of eco data coming out, and of course 0:08:26.360 --> 0:08:29.720 the Fed tomorrow and add to that today a renewed 0:08:29.840 --> 0:08:32.920 run on some of these regional banks really just kind 0:08:32.920 --> 0:08:36.080 of really throwing a wrench into this market here. Prea 0:08:36.120 --> 0:08:38.880 Misterjoints is Managing director and Global head of Rate Strategy 0:08:38.920 --> 0:08:43.079 of TD Securities pre I mean, I guess the bank 0:08:43.200 --> 0:08:47.120 issue is not done, even though Jamie Diamond and JP 0:08:47.240 --> 0:08:51.160 Morgan stepped in for First Republic yesterday. How do you 0:08:51.200 --> 0:08:55.920 think this banking turmoil impacts the FED and how it 0:08:55.960 --> 0:08:57.920 thinks of the economy and what it needs to do 0:08:57.960 --> 0:08:59.000 with its policy. 0:09:00.480 --> 0:09:03.400 Sure, thanks for having me on so great question. 0:09:04.040 --> 0:09:06.439 I mean, the Fed has a dual mandate, so they're 0:09:06.480 --> 0:09:09.000 looking at the labor market and inflation, and if you 0:09:09.000 --> 0:09:11.160 look at the data right now, it would argue for 0:09:11.280 --> 0:09:13.160 them to hike, and we're looking for them to hike 0:09:13.480 --> 0:09:16.400 tomorrow as well as hike once more in June. But 0:09:16.520 --> 0:09:19.079 I think the banking in fact, I'm calling it a crisis. 0:09:19.120 --> 0:09:22.200 I mean this is this wasn't just a couple of 0:09:22.240 --> 0:09:26.360 banks mismanagement of portfolios. I think there's something structural here. 0:09:26.679 --> 0:09:29.400 You know, we're seeing deposit outflows across the banking system. 0:09:29.440 --> 0:09:31.760 I think that continues because money market funds are giving 0:09:31.800 --> 0:09:33.559 you higher rates than banks. 0:09:33.840 --> 0:09:35.880 There are unrealized losses on portfolios. 0:09:36.200 --> 0:09:38.160 And we're not even talking about the loan book between 0:09:38.160 --> 0:09:40.680 the commercial real estate or other loans. So I think 0:09:40.840 --> 0:09:44.559 there's a banking issue among a lot of banks, not 0:09:44.640 --> 0:09:47.120 just the banks that have failed. And what that's going 0:09:47.160 --> 0:09:50.120 to do is for some banks, I think the FDIC 0:09:50.240 --> 0:09:53.400 receivership option. For others, it's going to be some sort 0:09:53.400 --> 0:09:56.920 of consolidation. But overall, you're asking about the longer term impact. 0:09:57.320 --> 0:10:00.120 I think it's one of bank deleveraging. Banks have to 0:10:00.160 --> 0:10:04.079 either raise capital or shrink their balance sheet. It's very 0:10:04.120 --> 0:10:06.520 hard to raise capital, if not impossible, for SVB, it 0:10:06.600 --> 0:10:09.360 was impossible. So I think in that scenario, a bank 0:10:09.440 --> 0:10:11.280 is going to have to cut back where they can. 0:10:11.679 --> 0:10:15.920 So I see title lending standards shrinking off the loan book. 0:10:16.000 --> 0:10:18.280 It's very hard for them to sell securities because they're 0:10:18.280 --> 0:10:21.079 in the health to maturity portfolio, but the loan book shrinks, 0:10:21.120 --> 0:10:23.760 and so that's going to have an impact on the 0:10:23.800 --> 0:10:27.840 economy long over the next six months or longer. And 0:10:27.920 --> 0:10:30.679 so our view is that the economy was already heading 0:10:30.720 --> 0:10:33.400 into a slowdown before March or before the start of 0:10:33.440 --> 0:10:36.680 the banking crisis. I think the supercharges it, which is 0:10:36.679 --> 0:10:39.400 why we're thinking the FED is cutting starting later this 0:10:39.520 --> 0:10:41.960 year December, and then cuts a lot more than what's 0:10:42.000 --> 0:10:44.240 priced in, so it's you know, I think this is 0:10:44.360 --> 0:10:47.000 just the accelerant. 0:10:45.640 --> 0:10:50.840 Why do you think the FED would cut I mean, here, 0:10:50.920 --> 0:10:55.560 they are raising rates for more than a year in 0:10:55.800 --> 0:10:58.760 order to bring this about. Why would you turn around 0:10:58.800 --> 0:11:01.640 and cut after you've achieve your goal? Or I mean 0:11:01.679 --> 0:11:05.280 they haven't even gotten close to the inflation level they want. 0:11:05.360 --> 0:11:08.599 Jay Jay continues to tell us. J Powell continues to 0:11:08.640 --> 0:11:11.440 tell us he needs to get closer to two percent. 0:11:11.480 --> 0:11:15.600 We saw a headline number of you know, seven percent. 0:11:16.160 --> 0:11:19.480 So yeah, now, I think that's fair. They did want 0:11:19.520 --> 0:11:21.280 to slow things down, but they have to be careful 0:11:21.320 --> 0:11:23.520 what they wish for. Right if they get a really 0:11:23.920 --> 0:11:27.080 sharp slowdown or a disorderly slow down, I would say 0:11:27.120 --> 0:11:29.320 the tightening and financial conditions in the last two months 0:11:29.400 --> 0:11:34.840 is disorderly. It's fast, it's creating this risk of sentiment. 0:11:35.080 --> 0:11:38.439 It starts to impact other sectors of the economy. Now, 0:11:38.679 --> 0:11:41.080 right now, I think the data is still strong, but 0:11:41.120 --> 0:11:43.840 remember the FED is data dependent, and so if the 0:11:43.920 --> 0:11:46.800 unemployment rate starts to tick up, if you get negative payrolls. 0:11:46.880 --> 0:11:49.560 We have negative payrolls starting in the fourth quarter in 0:11:49.600 --> 0:11:53.000 our forecast economy hitting a recession, they're going to have 0:11:53.080 --> 0:11:53.760 to start cutting. 0:11:53.800 --> 0:11:53.920 Now. 0:11:53.920 --> 0:11:55.760 I'm not saying they're going to cut to zero because 0:11:55.800 --> 0:11:59.040 inflation is going to prevent that. But you know, should 0:11:59.040 --> 0:12:01.559 the economy have five and a half percent FED funds 0:12:02.280 --> 0:12:06.000 when the unemployment rates rising sharply and you're seeing negative pyros, 0:12:06.000 --> 0:12:07.880 that's what we think. They start the cutting and then 0:12:08.480 --> 0:12:08.880 you see the. 0:12:08.880 --> 0:12:11.559 Unemployment rate rising sharply. Currently we're at three and a 0:12:11.600 --> 0:12:13.560 half percent. It's a level that I didn't even know 0:12:13.600 --> 0:12:16.240 we could get to. You know, I thought that was impossible. 0:12:17.160 --> 0:12:18.600 No, Lily more it is tight. 0:12:18.720 --> 0:12:21.080 But we have nine and a half billion open jobs. 0:12:22.320 --> 0:12:25.960 But you know, there's a structural mismatch between the in 0:12:26.000 --> 0:12:28.640 the skills mismatch issue. So we see the uneployment rate 0:12:28.679 --> 0:12:30.520 at five and a half by the end of next year, 0:12:30.800 --> 0:12:32.839 and that's much higher than the FED once and that's 0:12:32.840 --> 0:12:34.400 why I think they're going to have to cut more. 0:12:34.520 --> 0:12:37.200 But that's a long time from now. That's like a 0:12:37.280 --> 0:12:39.440 century away the end of next year. 0:12:39.320 --> 0:12:40.120 Making it's there. 0:12:40.400 --> 0:12:43.240 That's dude, that's that's very difficult to forecast what's going 0:12:43.320 --> 0:12:45.600 to happen in more than eighteen months. 0:12:45.440 --> 0:12:47.320 That's what That's what that's what we pay Pria the 0:12:47.320 --> 0:12:48.720 big bucks for. So she goes out there. 0:12:48.760 --> 0:12:51.920 I mean, but so Pria, you see the FED cutting 0:12:52.000 --> 0:12:54.120 in December this year. We do? 0:12:54.880 --> 0:12:57.120 We do? I mean is there a risk to that? 0:12:57.240 --> 0:12:59.840 Yes, I would say risks are later because they've just 0:13:00.080 --> 0:13:03.120 may not have enough evidence to say that the slowdown 0:13:03.200 --> 0:13:06.320 is more than they anticipated. And remember the unemployment rate. 0:13:06.360 --> 0:13:08.679 You're talking about how difficult it is to focus. It's 0:13:08.720 --> 0:13:11.640 also the most lagging indicator. I mean, the first thing 0:13:11.679 --> 0:13:15.480 that happens is job openings come off, then the layoff start, 0:13:15.840 --> 0:13:18.640 and then for the unemployment rate to really rise. We 0:13:18.760 --> 0:13:20.920 might be already in a recession, so it might be 0:13:21.040 --> 0:13:23.559 janned when they start to cut. But yeah, we're actually 0:13:23.600 --> 0:13:27.160 forecasting December this year first rate cut, and then fifty 0:13:27.160 --> 0:13:30.640 basis point cuts most of next year. 0:13:31.520 --> 0:13:34.160 So what are you going to be listening for tomorrow? 0:13:34.200 --> 0:13:36.720 Pria in the comments and the Q and A from 0:13:36.720 --> 0:13:39.960 FED Chairman j Pale. That might either give you greater 0:13:40.040 --> 0:13:44.240 conviction to that call or maybe cause you some concern. 0:13:45.400 --> 0:13:47.680 So I'll be watching for how he talks about bank 0:13:47.760 --> 0:13:50.640 lending standards. I mean they've had I think they would 0:13:50.640 --> 0:13:53.280 have seen the slews the Senior Loan Officers Survey, which 0:13:53.280 --> 0:13:56.120 hasn't yet come out after March, but we're going to 0:13:56.120 --> 0:13:59.640 get that report next week. How does Cheppael talk about 0:13:59.640 --> 0:14:02.080 it is that, yes, they are tightening, this is what 0:14:02.120 --> 0:14:04.480 we expected to your earlier point that this was the 0:14:04.520 --> 0:14:07.959 intent of tightening, or well, if it's disorderly, if it's 0:14:08.000 --> 0:14:10.560 too much tightening, we have to reconsider. So how do 0:14:10.600 --> 0:14:13.160 they talk about the bank credit channel. I'm sure he's 0:14:13.160 --> 0:14:15.600 not going to talk about specific banks, but that's one. 0:14:16.000 --> 0:14:19.360 The other one, you know, is on inflation. How patient 0:14:19.400 --> 0:14:22.040 can they be on inflation? If inflation is still in 0:14:22.080 --> 0:14:25.000 public enemy number one, then I think this is really 0:14:25.040 --> 0:14:27.280 negative for his assets because that means even if the 0:14:27.320 --> 0:14:30.800 unemployment rate is rising, if inflation is high and sticky, 0:14:30.880 --> 0:14:33.480 the FED can't respond. So I'll be watching for that. 0:14:33.800 --> 0:14:37.360 I hope somebody asks him about QT quantitative tightening, which 0:14:37.360 --> 0:14:40.360 I think is partly responsible for what's happening because it's 0:14:40.440 --> 0:14:43.600 draining reserves and deposits from the banking system. But I 0:14:43.600 --> 0:14:46.120 think the Fed's always talked about that is happening in 0:14:46.160 --> 0:14:48.320 the background, So we may not get much, but I 0:14:48.440 --> 0:14:49.400 still hope he's asked. 0:14:50.120 --> 0:14:52.520 So, I mean the banks. 0:14:52.520 --> 0:14:56.280 You don't expect anything specific on names, right, but will 0:14:56.320 --> 0:14:57.880 he talk about financial stability? 0:14:57.880 --> 0:14:58.520 Does he have to. 0:15:00.040 --> 0:15:02.040 It? Doesn't have to. That's not his mandate. 0:15:02.160 --> 0:15:03.760 And I think he's going to say, well, you saw 0:15:03.800 --> 0:15:07.480 Vice share Bars report on it. The FDIC is talking 0:15:07.480 --> 0:15:09.320 about different things they can do. This is really a 0:15:09.400 --> 0:15:13.120 Congress if it's a regulation issue that something Congress needs 0:15:13.160 --> 0:15:15.200 to work on. I think he's going to deflect and 0:15:15.280 --> 0:15:18.680 say the FED meeting is about monetary policy. But I 0:15:18.720 --> 0:15:21.160 do think he's going to reinforce data dependence, right, so 0:15:21.200 --> 0:15:23.640 if the data suddenly turns, I think the FED is 0:15:23.680 --> 0:15:26.440 going to say, well, we'll respond and state that even 0:15:26.480 --> 0:15:29.080 if they do pause, they could hike after that, or 0:15:29.080 --> 0:15:31.320 they could cut after that. I don't think they'll have 0:15:31.360 --> 0:15:33.880 the ability to hike, but I think he might say 0:15:33.880 --> 0:15:35.640 that and sound a little hawkish tomorrow. 0:15:35.920 --> 0:15:36.200 All right. 0:15:36.240 --> 0:15:38.520 Prea, thank you so much for joining us. Always appreciate 0:15:38.520 --> 0:15:41.640 getting your perspective there. Prea Misrap. She's a managing director, 0:15:41.800 --> 0:15:45.080 Global head of rate Strategy at TD Securities. I think 0:15:45.080 --> 0:15:47.920 with a very interesting call here, expecting the FED to 0:15:47.960 --> 0:15:51.120 begin cutting rates at the end of next of this 0:15:51.240 --> 0:15:54.200 year and then continue at maybe an accelerated pace in 0:15:54.200 --> 0:15:55.000 twenty twenty four. 0:15:55.080 --> 0:15:56.400 So and unemployment rising. 0:15:56.680 --> 0:15:59.840 I mean, if you look at the unemployment rate right now, 0:16:00.280 --> 0:16:03.000 it's doing anything but right. On the other hand, Friday, 0:16:03.120 --> 0:16:04.440 we're going to get a new number. 0:16:04.600 --> 0:16:07.760 You're listening to the tape Cat's are live program Bloomberg 0:16:07.800 --> 0:16:11.400 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:16:11.440 --> 0:16:13.400 tune in app, Bloomberg dot Com, and. 0:16:13.360 --> 0:16:14.680 The Bloomberg Business App. 0:16:14.720 --> 0:16:17.520 You can also listen live on Amazon Alexa from our 0:16:17.560 --> 0:16:22.640 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:16:23.800 --> 0:16:25.920 We've got like we don't have enough going on. We've 0:16:25.920 --> 0:16:27.760 got earnings all over the place. We've got Ego data 0:16:27.800 --> 0:16:29.400 all over the place. We've got the Fed. Now, we've 0:16:29.440 --> 0:16:32.720 got renewed banks selling. But we also have this issue 0:16:32.720 --> 0:16:35.000 of paying our bills, our government paying the bills. I mean, 0:16:35.040 --> 0:16:36.880 you know, I balance a check book every month like 0:16:36.920 --> 0:16:39.360 a lot of folks. I'm sure, but the government, I'm 0:16:39.400 --> 0:16:41.080 not sure. They're not so good at that. Dwayne Wright, 0:16:41.240 --> 0:16:46.000 senior government analysts with Bloomberg Intelligence, joins us here. So Dwayne, 0:16:46.040 --> 0:16:48.320 give us a sense of where we are with the 0:16:48.400 --> 0:16:53.120 debt sealing negotiations and maybe what's kind of the best 0:16:53.160 --> 0:16:54.560 guess of how this thing plays out. 0:16:55.560 --> 0:17:00.440 Well, where we are Republicans pass their gets You bill 0:17:00.600 --> 0:17:06.160 last week, and we then got news from Secretary Treasury 0:17:06.359 --> 0:17:11.199 Yellen that the new X state is June first, and 0:17:11.280 --> 0:17:16.119 so shortly after that we heard the Biden White House 0:17:16.200 --> 0:17:20.600 invite the leaders of the House and Senate, so the 0:17:20.600 --> 0:17:23.399 majority and minority leaders in the House and Senate to 0:17:23.640 --> 0:17:28.200 the White House to essentially kick off negotiations on a 0:17:28.320 --> 0:17:31.840 path forward. So a very timely move. I think the 0:17:31.960 --> 0:17:34.920 challenge here is that one, there's not a whole lot 0:17:34.920 --> 0:17:38.280 of time. It's May second, June first is right around 0:17:38.320 --> 0:17:42.320 the corner to the House pass bill is pretty much 0:17:42.320 --> 0:17:46.520 a non starter for Democrats, who have signaled that they 0:17:46.600 --> 0:17:52.119 only want a clean debt ceiling raise. So really the 0:17:52.200 --> 0:17:55.240 question is where do we go from here if the 0:17:55.280 --> 0:17:58.639 two parties are pretty much far apart from what they're 0:17:58.720 --> 0:18:01.680 looking for. Yeah, to me, deat ceiling. 0:18:01.480 --> 0:18:04.680 Does the do the Democrats get what they want? 0:18:04.800 --> 0:18:08.240 I mean, will they hold you know, the economy hostage 0:18:08.320 --> 0:18:10.760 and unless they get a clean debt ceiling raise or 0:18:10.800 --> 0:18:14.360 isn't it, you know, in a sense, the responsible thing 0:18:14.760 --> 0:18:17.680 to try and control spending while you're raising the debt limit. 0:18:18.400 --> 0:18:21.560 I think we're heading towards a path where both parties 0:18:21.600 --> 0:18:25.800 can say that they've won here. First off, I think 0:18:25.840 --> 0:18:29.359 we're gonna need a short term debt ceiling raise, a 0:18:29.600 --> 0:18:33.800 kick the can down the road because parties are just 0:18:33.800 --> 0:18:36.560 too far apart on how much to cut. 0:18:36.920 --> 0:18:39.359 Don't we always do that? Dwayne isn't kicking the can 0:18:39.560 --> 0:18:40.240 what the government? 0:18:40.720 --> 0:18:42.720 Wouldn't it be great if they sat down and thought 0:18:42.760 --> 0:18:45.480 of a long term solution that included lifting the debt 0:18:45.520 --> 0:18:48.000 limit but also put some kind of cap on our spending. 0:18:48.560 --> 0:18:50.840 I think that's where we'll go. I just don't think 0:18:50.880 --> 0:18:54.199 they can get there in four weeks, So kicking the 0:18:54.240 --> 0:18:57.680 can down the road to say the fall is probably 0:18:57.720 --> 0:19:00.000 what's going to happen, and that's going to allow time. 0:19:00.080 --> 0:19:04.320 I'm for both parties to say, what's the universe of 0:19:04.400 --> 0:19:07.359 cuts that we're willing to live with, What can we 0:19:07.400 --> 0:19:09.480 get out of the House, what can we get out 0:19:09.520 --> 0:19:12.359 of the Senate. And it sets up a narrative where 0:19:12.640 --> 0:19:16.320 if they can agree on what that spending package looks like, 0:19:16.440 --> 0:19:19.760 not just for next year, but also for say, the 0:19:19.800 --> 0:19:23.520 next five to ten years, they can work on what 0:19:23.560 --> 0:19:27.399 those specific cuts are and in the meantime pass a 0:19:27.440 --> 0:19:30.160 clean debt ceiling race. So you have on the one hand, 0:19:30.640 --> 0:19:33.479 President Biden getting his clean debt ceiling rais and then 0:19:33.520 --> 0:19:37.520 on the other you have the Republicans getting their fiscal 0:19:37.640 --> 0:19:42.000 budgetary cuts which they've put forward. So this whole process 0:19:42.040 --> 0:19:45.080 needs to play out for a bit longer, especially when 0:19:45.280 --> 0:19:49.560 keep in mind Republicans just pass their bill, So we 0:19:49.600 --> 0:19:51.840 need a couple more weeks, probably a couple more months 0:19:51.880 --> 0:19:52.879 to figure it all out. 0:19:53.080 --> 0:19:55.399 If you step back on this, Dwayne and I'm you know, 0:19:55.560 --> 0:19:57.679 you live in this and Paul and I are just 0:19:58.720 --> 0:20:03.760